India unveils Rs 250 billion plan for electronics components manufacturing

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India unveils Rs 250 billion plan for electronics components manufacturing

India unveils Rs 250 billion plan for electronics components manufacturing

Industry News
Jan 07,25

The finance ministry has approved an incentive scheme worth nearly $3 billion (approximately Rs 250 billion) to encourage local manufacturing of electronics components.

The proposal is expected to be approved by the cabinet later this month and will be rolled out in April, according to government sources. Over the next five to six years, the scheme is expected to generate production of electronics components worth $50-60 billion.

The initial discussions between the Ministry of Electronics and IT (MeitY) and the finance ministry considered a budget of Rs 300-400 billion. However, after receiving industry estimates on investments, demand, and production, the finance ministry opted for a lower amount to ensure full utilisation of the fund pool. This approach contrasts with the production-linked incentive (PLI) schemes for smartphones and IT hardware, which have seen underutilisation of their allocated budgets.

Officials indicated that the fund could be revised upwards if the entire amount is utilised. Unlike the smartphone PLI scheme, where companies receive incentives based on production thresholds (ranging from 4-6%), incentives for this component scheme will vary according to product types, factoring in localisation and manufacturing challenges compared to countries like China and Vietnam. Products facing higher manufacturing constraints will receive greater incentives, with rewards linked to the level of localisation achieved.

The scheme will adopt a different incentive structure, as components and subassemblies are capital-intensive, unlike smartphones where smaller investments are required for larger manufacturing operations. “Developing a component manufacturing ecosystem requires significant investments,” said one official.

Ahead of the rollout, the domestic electronics industry is requesting a reduction in customs duties on certain smartphone parts. They argue that high duties undermine the effectiveness of incentives, particularly for components that are heavily imported. The industry is also asking the finance ministry to review these duties in the upcoming Budget.

The scheme aims to create a robust ecosystem for component manufacturing, driven by India's projected demand for electronic components, which is expected to rise to $240 billion by 2030, up from $45.5 billion in 2023. This surge is mainly due to increasing local production of mobile phones. The government’s goal is to raise the local value addition in electronics manufacturing to 35-40% over the course of the scheme, with the eventual target of reaching 50% from the current 15-18%.

Key components targeted under the scheme include printed circuit boards (PCBs), camera modules, display subassemblies, lithium-ion cells, speakers, vibrator motors, and mechanics, which together constitute about 50% of the bill of materials in mobile phones and laptops.

A Confederation of Indian Industry (CII) report identified components such as batteries, camera modules, mechanicals, displays, and PCBs as high-priority areas. These components accounted for 43% of the component demand in 2022, and their combined value is expected to grow to $51.6 billion by 2030. The report warns that India can no longer afford to rely on imports for these essential components.

(ET)